For better ore worse – mining takes centre stage in Africa’s COVID-19 recovery

The mining industry in Africa has broadly weathered the storm of the COVID-19 pandemic, and now finds itself at the centre of economic recovery plans in many countries. 

• Operational constraints resulting from COVID-19 have largely eased, with most borders reopened to international traffic. Most governments have exempted mining supply chains from border closures and travel curbs, and would continue to do so if restrictions were reimposed.
• Given its resilience to the COVID-19 shock, governments are willing to give the mining industry a central place in their economic recovery plans. This is likely to create a more supportive environment for new mining ventures, including among nascent or aspiring producers.
• However, some cash-strapped governments – notably in Zambia and Congo (DRC) – will primarily view large mining investments as an opportunity to extract short-term revenues.
• The political sensitivity of mining is almost certain to grow in the coming years, requiring large operators to take a cautious approach when framing decisions around jobs, local content and new investments.

Digging in

With a business model dependent on both global supply chains and personnel working in confined spaces, the mining industry could have been the perfect victim of the COVID-19 crisis. Yet after six months of operational disruption, by and large mining operations in Africa have proved remarkably resilient. 

Given the prevailing model across Africa of remote mine camps, the mining industry largely managed to shut itself off from the outside world through on-site lockdowns and strict access controls. At sites where a strong culture of health and safety already prevailed, operators were able to set up a robust testing and isolation infrastructure, often performing far better than their host governments. 

Only in South Africa’s mostly underground mines, where mining personnel are on average older and more integrated with population centres, was the health impact significant. South Africa’s Mineral Councils had reported more than 15,000 positive cases and 161 COVID-19-related deaths as of early September. Elsewhere, COVID-19 had a minimal impact on personnel health. Most mining operations in West Africa reported cases in single-digit numbers, while no COVID-19 fatalities have been recorded at mine sites in Ghana, Mali and Burkina Faso, the region’s three largest gold producers. 

That said, miners for months had to juggle a patchwork of border closures and travel restrictions, disrupting international staff rotations and creating wider logistical headaches. At its peak in May, borders were closed in 43 African countries. Exemptions for essential personnel were few and far between, and projects at earlier stages of exploration and development were largely paralysed. 

Nonetheless, conscious of the economic importance of mining commodities, most governments avoided imposing strict restrictions on producing operations and their supply chains. For example, borders remained open throughout the pandemic for imports of mining products into landlocked Congo (DRC), Zambia, Mali and Burkina Faso. In the copper-rich Katanga region (DRC), provincial-level lockdowns were only introduced for 24-48 hours and did not apply to industrial miners. Despite misgivings over Tanzania’s apparent lax approach to COVID-19, neighbouring Zambia kept its border open (bar a five-day closure in May) to allow copper exports and broader trade to continue unimpeded. 

South Africa’s strict lockdown was the main exception. For a brief period in late March, the closure of its ports threatened to disrupt entire mining supply chains across southern Africa. However, even there the sector was among the first to resume activities, with open-cast mines allowed to re-open from late April.

Light at the end of the tunnel

With almost all borders now open to passenger traffic, these operational concerns have eased. Mandatory testing, social distancing – and, in future, systematic vaccinations – will become a fact of life at large-scale mining operations. As of early September, about 75% of South Africa’s 450,000-strong mining workforce had returned to work, and operations elsewhere are largely back to normal. 

Nonetheless, in several countries miners have had to deal with a surge in labour grievances linked to their management of the workforce during the pandemic. In places such as Congo (DRC), a 30-day deadline for lifting site lockdowns was imposed in July – sooner than most mining companies would have wanted – by ministers keen to placate local workers excluded from shifts for months. Mining projects have already faced union disputes over back pay for workers stood down during the pandemic, or special bonuses for those who stayed on site. A pandemic scenario was rarely envisaged by local labour legislation, and some of these disputes could be left to the interpretation of labour inspectors or courts. 

Bedrock of recovery

Nonetheless, the mining industry emerges from COVID-19 in a relatively resilient state. The worst-hit diamond and platinum producers in South Africa are shaken, with average production expected to decline by 11% in 2020. But their latest forecasts are slightly rosier than the 15% decline anticipated at the peak of the pandemic in June, while the overall picture elsewhere on the continent is more positive. Copper and cobalt operations in Congo (DRC) and Zambia have seen prices rebound after an initial fall in March. West Africa’s gold producers have benefited from record prices amid a global flight to safety and light-touch restrictions in host countries. Gold prices are also helping Tanzania to increase its mining revenues to a historical high. Disruption to exploration programmes will almost certainly delay the pipeline of future projects, but the impact will take several years to materialise. 

Given the sector’s size and resilience, mining will be given a central place in the recovery plans of many commodity producers. South Africa’s economic recovery plan, to be finalised in the coming weeks, has identified revitalising the mining industry as a top priority. The government wants to increase South Africa’s share of global exploration expenditure to 3% from 1% currently. To boost investor confidence, it is making equally ambitious plans to simplify mining regulations and fast-track approvals so that mining and environmental permits can be granted twice as fast. 

Mining is also set to feature in the diversification strategies of oil producers badly hit by the oil price crash. Nigeria’s President Muhammadu Buhari has personally backed a reform of the mining sector that the government hopes will kickstart both artisanal and industrial gold production, which currently accounts for a paltry 0.3% of the economy. In Angola, the oil price crash gives further impetus to diversification plans by the administration to attract investment in prospective diamond, gold and iron ore deposits. Kenya in September unveiled plans to establish a gold refinery in an attempt to formalise the nascent sector. 

Rich seams

However, for miners dealing with cash-strapped governments the sector’s central role is more likely to bring unwanted attention. Mining projects – often the largest taxpayers in their host countries – will be expected to play their part in rescuing public finances. With revenues under stress, some governments will find squeezing mining operators for extra income a more politically attractive option than taxing their own frustrated citizens – or, in some cases, the only feasible option. 

Such crisis mode is particularly visible in the Central African Copperbelt. In Zambia, the combination of economic volatility and upcoming elections in 2021 will likely see the administration of President Edgar Lungu dial up its populist rhetoric towards foreign commercial interests, step up enforcement of regulations and implement further changes to the sector’s fiscal regime to extract more revenue. In Congo (DRC), where the currency has lost 20% of its value since the start of the COVID-19 pandemic, the government has ended an exemption on value-added tax (VAT – sales tax), a move hugely unpopular with miners, which already face a backlog of more than USD 1bn in VAT refunds. The authorities are also threatening companies to repatriate export earnings and to increase their local content contribution or face penalties. 

No country can afford a decisive shift towards resource nationalism, and a state takeover of the sector is not on the cards anywhere. Governments will continue to balance responding to short-term cash needs and promoting investment in their own way, based on pressure from their finances and their electorates. But everywhere the political sensitivity of mining is almost certain to grow in the coming years. Large operators will need to adopt a cautious approach to framing decisions around jobs, local content and new investments.